The Securities and Exchange Board of India (SEBI) held its 211th board meeting in Mumbai today, where significant amendments were approved to the Securities Contracts (Regulation) Rules, 1957. These changes primarily focus on the Minimum Public Offer (MPO) and the timelines for compliance with Minimum Public Shareholding (MPS) requirements. The overarching goal of these amendments is to enhance the ease of doing business in India’s capital markets.
Current Landscape of Minimum Public Offer
Under the existing provisions of the Securities Contracts (Regulation) Rules, issuers with a post-issue market capitalization exceeding ₹1,00,000 crore are required to offer a Minimum Public Offer of ₹5,000 crore and at least 5% of their post-issue market cap. While this regulation aims to ensure adequate public participation, it poses challenges for large issuers. The substantial dilution of stakes through an Initial Public Offering (IPO) can overwhelm the market, leading to a situation where demand does not match supply. This imbalance can discourage companies from pursuing a listing in India, ultimately affecting market dynamism.
Proposed Changes to MPO Requirements
The SEBI Board recognized the need for a more flexible approach for large issuers. The proposed amendments allow issuers to list with a lower initial public float, thereby extending the period for achieving the MPS of 25%. This gradual approach is designed to mitigate the risks associated with large IPOs while ensuring sufficient liquidity in the market.
The revised MPO requirements are as follows:
For Market Capitalization (MCap) ≤ ₹1,600 Cr: The minimum public offer remains at 25%.
For ₹1,600 Cr < MCap ≤ ₹4,000 Cr: The minimum public offer is set at ₹400 crore, with MPS of 25% to be achieved within three years from the date of listing.
For ₹4,000 Cr < MCap ≤ ₹50,000 Cr: The minimum public offer is 10%, with MPS of 25% to be achieved within three years from the date of listing.
For ₹50,000 Cr < MCap ≤ ₹100,000 Cr: The minimum public offer is ₹1,000 crore and at least 8% of the post-issue market cap, with MPS of 25% to be achieved within five years from the date of listing.
For ₹1,00,000 Cr < MCap ≤ ₹5,00,000 Cr: The minimum public offer is ₹5,000 crore and at least 5% of the post-issue market cap, with MPS of 10% to be achieved within two years.
These changes are designed to provide a more flexible framework for large issuers while ensuring that the market remains liquid and accessible to retail investors.
Monitoring and Compliance
Post-listing, the Stock Exchanges will continue to monitor these issuers through their surveillance mechanisms to ensure orderly trading in their shares. This oversight is crucial in maintaining market integrity and protecting the interests of public shareholders.
Conclusion
The amendments approved by the SEBI Board represent a proactive approach to fostering a more conducive environment for businesses looking to list in India. By easing the requirements for large issuers and allowing for a gradual compliance timeline, SEBI aims to strike a balance between encouraging public participation and ensuring market stability. As these changes take effect, they are expected to enhance investor confidence and promote a more vibrant capital market in India.
In summary, these amendments not only signify SEBI’s commitment to improving the regulatory framework but also highlight the importance of adapting to the evolving needs of the market. The future of India’s capital markets looks promising as these changes pave the way for increased participation and growth.